Although I have written much about the "Internet Freedom" folly of Egypt, there is more to be said (unfortunately). The Christian Science Monitor points out something I hadn't recognized before but is surely true: Given that the government uses Egyptian pounds to fund food and energy subsidies, the currency's further depreciation will only make it more difficult to fund the purchase of these (usually imported) goods. So...
The pound had steadily declined since Mubarak was pushed from power with the country's grim economic outlook straining its foreign reserves. Billions in hard currency have been spent by the central bank trying to protect the country directly, as well as on wheat and fuel imports that the government subsidizes for domestic consumers. But notice my use of the word "had." Of late, the pound's decline is no longer "steady." Since about Jan. 13, the pound's decline against the dollar has been precipitous.Actually, Egypt not confronting the matter of subsidies head-on is quite a problem in itself. If I may elaborate on the formulation above:
That's particularly dangerous for Egypt, since so many dollar-dominated commodities are subsidized by an Egyptian government that receives most of its revenue in pounds. In other words, every bushel of wheat or barrel of oil that the government purchases is far more expensive in domestic terms, which in turn further depletes the government's foreign currency reserves, makes investors even more nervous about the chances of a pound collapse, and so puts more pressure on the pound. The very definition of a vicious cycle.
- The Islamist government refuses to roll back subsidies as demanded by the IMF so it may avail of a $4.8B bailout;
- Other lenders supposedly waiting on the sidelines for an IMF deal as a seal of good housekeeping do not want to contribute absent an IMF program;
- The deteriorating political climate causes further falls in the value of domestic currency
- As the political climate gets worse, subsidy removal insisted upon by the IMF becomes an even more remote prospect; return to (1).
As I said, where's yer white people now with $4.8 billion? Will the clerics even approve of Egypt taking this money? Perhaps religious fundamentalists (the Brotherhood) and economic fundamentalists (the IMF) don't mix, but they haven't even gotten that far to even consider the issue.
UPDATE: The ever-elusive IMF deal is now said by Moodys to occur in 3Q2013 at the earliest. Dig the "tough sell" line about gaining public approval--it's my understatement of the day. Let's say I am not holding my breath.